Sole Proprietor or LLC for a music project and artist

Introduction. When do you need to formalize a business?#

I think if you have opened this article, music is more than just a hobby for you. However, as long as the music project is at startup level, it is enough to be a natural person without a legal form of entrepreneurial activity. In general, there is no need to think about unnecessary bureaucracy if, at the moment, условно, your activity is characterized by continuous creative experiments, without disciplined movement toward running a music project as a business.

But if the decision has been made and it is time to legalize your entrepreneurship, let's look into the topic in a bit more detail.

This article is based on my own practical experience of running a Sole Proprietor and an LLC. And the first and main piece of advice is to get yourself a lawyer and an accountant who will support the music project and protect you from trouble with the state, the tax authorities, and the law due to carelessness or incompetence.

Running an artist / manager activity through a Sole Proprietor#

Are you planning income of UAH 400,000 or more? Or UAH 50,000+ in a single payment (for example, performance fees)?

The same applies to applying for grant funds, sponsorship support, or bringing investment into the project that will come into the accounts. Also, are you carrying on entrepreneurial activity on your own or interacting with other Sole Proprietors or contractors?

In that case, the Sole Proprietor form (physical person-entrepreneur) will help.

Again, a recommendation: to avoid breaking your head over filing reports and paying taxes on time, an accountant is a must-have. For the first six months I handled the bookkeeping myself, filed reports through Diia, and paid the taxes that way too. But when I found an accountant, in the first month of our cooperation she closed the loose ends I had created during my self-management period. I overlooked something, calculated something wrong, and could have had a headache. So don't repeat my mistakes and don't make life harder for yourself; paying an accountant for a Sole Proprietor is more than affordable.

Sole Proprietor registration#

You can register a Sole Proprietor very quickly through the Diia app in just a few clicks.

Choose the 3rd group of Sole Proprietor, which is ideal for the needs of both an artist and a manager. Under the terms, you pay 5% of turnover + once per quarter you must pay the unified social contribution (USC) of UAH 4,686. That is, if UAH 100,000 came into the Sole Proprietor account during the quarter, you will need to pay UAH 5,000 in tax for the quarter + UAH 4,686 in USC.

Choose NACE codes#

For registration, you also need to choose NACE codes (the areas of activity of our business):

The main NACE code for an artist is 90.03 - Individual artistic activity (read about it)

If you are a manager, I recommend 74.90 - Other professional, scientific and technical activities, n.e.c. (read about it)

And in addition to the main one, add all the NACE codes that can expand our opportunities (there is no need to pay extra for them, so take all the necessary ones). For example:

70.21 Public relations activities

93.29 Organization of other recreation and entertainment activities

85.52 Education in the field of culture

59.20 Publishing of sound recordings

90.01 Theater and concert activities

82.99 Provision of other business support services, n.e.c.

After registration, you need to generate a file key for the EDS (electronic digital signature). I had mine made through Privat24. The Sole Proprietor uses it to sign documents and to authorize in government services.

And open a Sole Proprietor bank account in one of the banks. Personally, Monobank is the most convenient for me.

Receiving royalties as a Sole Proprietor#

According to current legislation, royalties received into Sole Proprietor accounts are taxed the same as for individuals. Namely, with the passive income tax, which is 18% personal income tax + 1.5% military tax. So the total tax rate on royalties will be 19.5%.

Wow! you may say, and that is true. This is a sore point, with a lot of discussion around it, so I hope it will be corrected by the legislator as soon as possible.

As could be understood from the previous paragraph, for the fact that you, as an author / performer, received royalties, even without a Sole Proprietor, you need to pay 19.5% tax to the state on passive income. The same way tax is paid on cashback in monobank or on a bank deposit, or on investing in shares / bonds.

LLCs can receive royalties most profitably (5%).

When should you register an LLC?#

Ideal option

A music project is a more or less stable and highly profitable business. Team members are partners, and there is a need to legally formalize the relationships between them, divide each partner's shares, and receive dividends.

Another option

If you are a band of several people and you are investing all your energy into your own project. Or when several artists have organized themselves into a label. Or when an artist has grown in scale and acquired a partner in the form of a manager.

Among mid-level artists in Ukraine, you won't find LLCs. And that makes sense. The accounting there is more complicated, and the functionality of a Sole Proprietor is more than enough.

For example, there are LLCs "BEZOБMEZHEN", LLC "MONATIK CORPORATION", LLC "HARDKISS". Artem Pivovarov has an open Sole Proprietor online. Tina Karol also works through a Sole Proprietor.

LLC registration#

LLC registration is done through a notary. They prepare the documentation based on the information provided:

passport details of the co-founders and the director + provide passport (originals);

tax identification codes (originals);

residence registration certificates (originals);

authorized capital;

types of activity;

address for LLC registration (if it is an office rented by you, it must be agreed with the landlord and a lease agreement for the LLC must be concluded);

As with a Sole Proprietor, you also need to open a bank account (it's a pity that monobank does not allow this for LLCs). And create an electronic digital signature. + order a seal for yourself.

Conclusion#

As one entrepreneur colleague once told me, “Nothing makes a business as solid as well-formalized legal relations!”

A Sole Proprietor, an LLC, or staying a natural person — the choice is yours, depending on your capabilities and circumstances. In any case, as at the beginning of the article and now, I emphasize the importance of a lawyer and an accountant. Without them, it's dangerous, like walking through a minefield.

The music business is profitable; I wish that your share of the market would be yours and that this would be enough, at minimum, for a comfortable creative process and the production of new music products!

Author: Pavlo Striletskyi